Managing Your Money*

Do you know where your money
goes? Too often, we spend our paychecks without having any idea where
the money went. You work hard to earn it. If you take control of how you
spend it, you will make better use of your money.

Managing your money means that
as your financial needs and goals change, you will have different fixed,
variable, and periodic expenses. For example, a person in his or her 20's
with a young family may be thinking of buying a house, while a senior
citizen may be considering selling one.

When you control how you spend
your money, you will be looking beyond how you spend your money at present
to how you want to budget for specific future needs. Managing money requires
the entire family's participation for you to be successful. For example,
if you and your spouse both have paychecks, you will want to consider
such issues, as who will pay which bills.

What are your goals?

If you keep in mind your long
term goals, you will be more willing to put aside money in savings to
meet them. In addition, if you write down these goals, it will help you
save for them. Suppose you want to buy a new car or a house in the future.
You will want to set up a separate category in your budget to meet this
goal.

How do you spend your
money?

As you examine your checkbook
and bills to determine your financial obligations and how you currently
spend your money, you will need to keep track of these expenses with a
worksheet. Before you can meet your goals, you need to know how you spend
your money.

The worksheet should contain
many categories which cover all types of expenses. Keep in mind that to
be effective, your worksheet has to include all expenses, both your needs
and your wants. You need to budget money for food and shelter, and the
money you want to spend on entertainment. In addition, if you pay by check,
you will find it helpful to track your expenses.

When do you spend your
money?

Some purchases you make on
a regular basis. Often these are fixed expenses. A mortgage or rent is
usually a monthly payment. To be certain you have enough funds, you may
find it helpful to set aside a portion of each paycheck. For example,
if you are paid each week, you would take a portion for mortgage or rent
payment out of each check. On the other hand, many people buy lunch or
snacks almost everyday and shop for groceries weekly. These are variable
expenses. While you make purchases regularly, you have some flexibility
about how much you spend.

Other payments which only occur
on a periodic basis should not catch you by surprise. The bill for car
insurance may arrive once every three months or even just twice a year,
yet it is often a large expense. To prepare for it, you can use the same
approach as with your mortgage or rent. Put some money aside from each
paycheck. If you deposit this money in a savings account, you will also
gain by earning interest until the payment is due.

What about savings?

To meet your long-term goals,
it is important that you include savings in your plan. In all likelihood,
you will not have money for a vacation or a new car if you don't anticipate
these variable expenses and provide for them in your budget. In addition,
there are always emergency situations; for example, your car may need
repairs or you may have to visit family in another city or state. When
you make savings a part of your plan, you will have money available when
you need it.

Where can you find
money to save?

By examining all the ways in
which you spend your income, you will have a complete picture of your
expenses. Perhaps you didn't notice that you were spending a dollar or
two on snacks on a daily basis. While these items may not seem to be a
lot of money, over the course of year, it adds up. What about money you
may spend on alcohol, cigarettes, or incidentals at the supermarket? If
you can reduce these expenditures, as well as buying other items on sale
you save money. Purchasing items on sale whether at the supermarket or
the department store can make a difference and help you with your long-term
goals.

What about using credit?

When you want to make a large
purchase, having good credit is very important. It will enable you to
take out a mortgage on a home or finance a car, but be careful when you
use it instead of cash. Remember, it is not income, only a loan which
must be repaid. You should limit the amount you pay on credit, excluding
a mortgage, to 15-20% of your monthly net income.

What if your income
or expenses change?

For most people, income and
expenses do change. You may get a raise or get laid off. Obviously, it
is easier to plan for a larger paycheck than a smaller one or none at
all. To protect against emergencies, the basic rule is to have six months'
expenses in savings. On the other hand, if you expect additional money,
you may plan to use it toward your long-term goals.

Managing your money requires
that you examine your financial needs and goals at least once a year.
When you have learned how to manage your money, you have reached an important
part of your financial goals.